Insurance cases Nov 22.docx

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[G.R. No. 154514. July 28, 2005]

WHITE GOLD MARINE SERVICES, INC., petitioner , vs . PIONEER INSURANCE AND

SURETY CORPORATION AND THE STEAMSHIP MUTUAL

UNDERWRITING ASSOCIATION (BERMUDA) LTD., respondents .

D E C I S I O N

QUISUMBING, J .:

This petition for review assails the Decision[1]

dated July 30, 2002 of the Court of Appeals

in CA-G.R. SP No. 60144, affirming the Decision[2]

dated May 3, 2000 of the Insurance

Commission in I.C. Adm. Case No. RD-277. Both decisions held that there was no violation of

the Insurance Code and the respondents do not need license as insurer and insurance

agent/broker.

The facts are undisputed.

White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity

coverage for its vessels from The Steamship Mutual Underwriting Association (Bermuda)

Limited (Steamship Mutual) through Pioneer Insurance and Surety Corporation

(Pioneer). Subsequently, White Gold was issued a Certificate of Entry and

Acceptance.[3]

Pioneer also issued receipts evidencing payments for the coverage. When WhiteGold failed to fully pay its accounts, Steamship Mutual refused to renew the coverage.

Steamship Mutual thereafter filed a case against White Gold for collection of sum of money

to recover the latter’s unpaid balance. White Gold on the other hand, filed a complaint before

the Insurance Commission claiming that Steamship Mutual violated Sections 186[4]

and 187[5]

of

the Insurance Code, while Pioneer violated Sections 299,[6]

300[7]

and 301[8]

in relation to

Sections 302 and 303, thereof.

The Insurance Commission dismissed the complaint. It said that there was no need for

Steamship Mutual to secure a license because it was not engaged in the insurance business. It

explained that Steamship Mutual was a Protection and Indemnity Club (P & I Club). Likewise,Pioneer need not obtain another license as insurance agent and/or a broker for Steamship Mutual

because Steamship Mutual was not engaged in the insurance business. Moreover, Pioneer was

already licensed, hence, a separate license solely as agent/broker of Steamship Mutual was

already superfluous.

http://sc.judiciary.gov.ph/jurisprudence/2005/jul2005/154514.htm#_ftn1




























The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision,

the appellate court distinguished between P & I Clubs vis-à-vis conventional insurance. The

appellate court also held that Pioneer merely acted as a collection agent of Steamship Mutual.

In this petition, petitioner assigns the following errors allegedly committed by the appellate

court,

FIRST ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS

NOT DOING BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . .

. ITS TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER HENCE AS AN

INSURER IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS

IN THE PHILIPPINES.

SECOND ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY

EVIDENCE THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE

BUSINESS.

THIRD ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED

NOT SECURE A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER

OF RESPONDENT STEAMSHIP.

FOURTH ASSIGNMENT OF ERROR

THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT

PIONEER AND [IN NOT REMOVING] THE OFFICERS AND DIRECTORS OF

RESPONDENT PIONEER .[9]

Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the

insurance business in the Philippines? (2) Does Pioneer need a license as an insurance

agent/broker for Steamship Mutual?

The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does

not have a license to do business in the Philippines although Pioneer is its resident agent. This

relationship is reflected in the certifications issued by the Insurance Commission.

Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance

business. To buttress its assertion, it cites the definition of a P & I Club in Hyopsung Maritime









In particular, a marine insurance undertakes to indemnify the assured against marine losses,

such as the losses incident to a marine adventure.[15]

Section 99[16]

of the Insurance Code

enumerates the coverage of marine insurance.

Relatedly, a mutual insurance company is a cooperative enterprise where the members are

both the insurer and insured. In it, the members all contribute, by a system of premiums orassessments, to the creation of a fund from which all losses and liabilities are paid, and where the

profits are divided among themselves, in proportion to their interest.[17]

Additionally, mutual

insurance associations, or clubs, provide three types of coverage, namely, protection and

indemnity, war risks, and defense costs.[18]

A P & I Club is ―a form of insurance against third party liability, where the third party is

anyone other than the P & I Club and the members.‖[19]

By definition then, Steamship Mutual as

a P & I Club is a mutual insurance association engaged in the marine insurance business.

The records reveal Steamship Mutual is doing business in the country albeit without the

requisite certificate of authority mandated by Section 187[20] of the Insurance Code. It maintainsa resident agent in the Philippines to solicit insurance and to collect payments in its behalf. We

note that Steamship Mutual even renewed its P & I Club cover until it was cancelled due to non-

payment of the calls. Thus, to continue doing business here, Steamship Mutual or through its

agent Pioneer, must secure a license from the Insurance Commission.

Since a contract of insurance involves public interest, regulation by the State is

necessary. Thus, no insurer or insurance company is allowed to engage in the insurance business

without a license or a certificate of authority from the Insurance Commission.[21]

Does Pioneer, as agent/broker of Steamship Mutual, need a special license?

Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of

registration[22]

issued by the Insurance Commission. It has been licensed to do or transact

insurance business by virtue of the certificate of authority[23]

issued by the same

agency. However, a Certification from the Commission states that Pioneer does not have a

separate license to be an agent/broker of Steamship Mutual.[24]

Although Pioneer is already licensed as an insurance company, it needs a separate license to

act as insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:

SEC. 299 . . .

No person shall act as an insurance agent or as an insurance broker in the solicitation or

procurement of applications for insurance, or receive for services in obtaining insurance, any

commission or other compensation from any insurance company doing business in the

Philippines or any agent thereof, without first procuring a license so to act from the

Commissioner, which must be renewed annually on the first day of January, or within six months

thereafter. . .








































Finally, White Gold seeks revocation of Pioneer’s certificate of authori ty and removal of its

directors and officers. Regrettably, we are not the forum for these issues.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30,

2002 of the Court of Appeals affirming the Decision dated May 3, 2000 of the Insurance

Commission is hereby REVERSED AND SET ASIDE. The Steamship Mutual UnderwritingAssociation (Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to

obtain licenses and to secure proper authorizations to do business as insurer and insurance agent,

respectively. The petitioner’s prayer for the revocation of Pioneer’s Certificate of Authority and

removal of its directors and officers, is DENIED. Costs against respondents.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur .

[G.R. No. 125678. March 18, 2002] (379 SCRA 356)

PHILAMCARE HEALTH SYSTEMS, INC., petitioner , vs . COURT OF APPEALS and

JULITA TRINOS, respondents .

D E C I S I O N

YNARES-SANTIAGO, J.:

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care

coverage with petitioner Philamcare Health Systems, Inc. In the standard application form, he

answered no to the following question:

Have you or any of your family members ever consulted or been treated for high blood pressure,

heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details) .[1]

The application was approved for a period of one year from March 1, 1988 to March 1,

1989. Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement,respondent’s husband was entitled to avail of hospitalization benefits, whether ordinary or

emergency, listed therein. He was also entitled to avail of ―out- patient benefits‖ such as annual

physical examinations, preventive health care and other out-patient services.

Upon the termination of the agreement, the same was extended for another year from March

1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage

was increased to a maximum sum of P75,000.00 per disability.[2]

http://sc.judiciary.gov.ph/jurisprudence/2002/mar2002/125678.htm#_edn1










During the period of his coverage, Ernani suffered a heart attack and was confined at the

Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband

was in the hospital, respondent tried to claim the benefits under the health care

agreement. However, petitioner denied her claim saying that the Health Care Agreement was

void. According to petitioner, there was a concealment regarding Ernani’s medical

history. Doctors at the MMC allegedly discovered at the time of Ernani’s confinement that he

was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus,

respondent paid the hospitalization expenses herself, amounting to about P76,000.00.

After her husband was discharged from the MMC, he was attended by a physical therapist at

home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties,

however, respondent brought her husband home again. In the morning of April 13, 1990, Ernani

had fever and was feeling very weak. Respondent was constrained to bring him back to the

Chinese General Hospital where he died on the same day.

On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44,an action for damages against petitioner and its president, Dr. Benito Reverente, which was

docketed as Civil Case No. 90-53795. She asked for reimbursement of her expenses plus moral

damages and attorney’s fees. After trial, the lower court ruled against petitioners, viz:

WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff

Julita Trinos, ordering:

1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani

Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who

paid the same;

2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;

4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.

SO ORDERED.[3]

On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all

awards for damages and absolved petitioner Reverente.[4]

Petitioner’s motion for reconsideration

was denied.[5]

Hence, petitioner brought the instant petition for review, raising the primary

argument that a health care agreement is not an insurance contract; hence the ―incontestability

clause‖ under the Insurance Code[6]

does not apply.

Petitioner argues that the agreement grants ―living benefits,‖ such as medical check -ups and

hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of
















the agreement until its expiration one-year thereafter. Petitioner also points out that only medical

and hospitalization benefits are given under the agreement without any indemnification, unlike in

an insurance contract where the insured is indemnified for his loss. Moreover, since Health Care

Agreements are only for a period of one year, as compared to insurance contracts which last

longer ,[7]

petitioner argues that the incontestability clause does not apply, as the same requires an

effectivity period of at least two years. Petitioner further argues that it is not an insurance

company, which is governed by the Insurance Commission, but a Health Maintenance

Organization under the authority of the Department of Health.

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby

one undertakes for a consideration to indemnify another against loss, damage or liability arising

from an unknown or contingent event. An insurance contract exists where the following

elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among

a large group of persons bearing a similar risk; and

5. In consideration of the insurer’s promise, the insured pays a premium.[8]

Section 3 of the Insurance Code states that any contingent or unknown event, whether past

or future, which may damnify a person having an insurable interest against him, may be insured

against. Every person has an insurable interest in the life and health of himself. Section 10

provides:

Every person has an insurable interest in the life and health:

(1) of himself, of his spouse and of his children;

(2) of any person on whom he depends wholly or in part for education or support, or

in whom he has a pecuniary interest;

(3) of any person under a legal obligation to him for the payment of money,

respecting property or service, of which death or illness might delay or prevent

the performance; and

(4) of any person upon whose life any estate or interest vested in him depends.

In the case at bar, the insurable interest of respondent’s husband in obtaining the health care

agreement was his own health. The health care agreement was in the nature of non-life











insurance, which is primarily a contract of indemnity.[9]

Once the member incurs hospital,

medical or any other expense arising from sickness, injury or other stipulated contingent, the

health care provider must pay for the same to the extent agreed upon under the contract.

Petitioner argues that respondent’s husband concealed a material fact in his application. It

appears that in the application for health coverage, petitioners required respondent’s husband tosign an express authorization for any person, organization or entity that has any record or

knowledge of his health to furnish any and all information relative to any hospitalization,

consultation, treatment or any other medical advice or examination.[10]

Specifically, the Health

Care Agreement signed by respondent’s husband states:

We hereby declare and agree that all statement and answers contained herein and in any

addendum annexed to this application are full, complete and true and bind all parties in interest

under the Agreement herein applied for, that there shall be no contract of health care coverage

unless and until an Agreement is issued on this application and the full Membership Fee

according to the mode of payment applied for is actually paid during the lifetime and good healthof proposed Members; that no information acquired by any Representative of PhilamCare shall

be binding upon PhilamCare unless set out in writing in the application; that any physician is, by

these presents, expressly authorized to disclose or give testimony at anytime relative to any

information acquired by him in his professional capacity upon any question affecting the

eligibility for health care coverage of the Proposed Members and that the acceptance of any

Agreement issued on this application shall be a ratification of any correction in or addition to this

application as stated in the space for Home Office Endorsement.[11]

(Underscoring ours)

In addition to the above condition, petitioner additionally required the applicant for

authorization to inquire about the applicant’s medical history, thus:

I hereby authorize any person, organization, or entity that has any record or knowledge of my

health and/or that of __________ to give to the PhilamCare Health Systems, Inc. any and all

information relative to any hospitalization, consultation, treatment or any other medical advice or

examination. This authorization is in connection with the application for health care coverage

only. A photographic copy of this authorization shall be as valid as the

original.[12]

(Underscoring ours)

Petitioner cannot rely on the stipulation regarding ―Invalidation of agreement‖ which reads:

Failure to disclose or misrepresentation of any material information by the member in the

application or medical examination, whether intentional or unintentional, shall automatically

invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to

return of all Membership Fees paid. An undisclosed or misrepresented information is deemed

material if its revelation would have resulted in the declination of the applicant by Philamcare or

the assessment of a higher Membership Fee for the benefit or benefits applied for .[13]























The answer assailed by petitioner was in response to the question relating to the medical

history of the applicant. This largely depends on opinion rather than fact, especially coming

from respondent’s husband who was not a medical doctor. Where matters of opinion or

judgment are called for, answers made in good faith and without intent to deceive will not avoid

a policy even though they are untrue.[14]

Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of

the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the

risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the

statement is material to the risk, if the statement is obviously of the foregoing character, since in

such case the insurer is not justified in relying upon such statement, but is obligated to make

further inquiry. There is a clear distinction between such a case and one in which the insured is

fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he

then knows, to be actually untrue, or the impossibility of which is shown by the facts within his

knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actualfraud.[15]

(Underscoring ours)

The fraudulent intent on the part of the insured must be established to warrant rescission of

the insurance contract.[16]

Concealment as a defense for the health care provider or insurer to

avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and

convincing evidence rests upon the provider or insurer. In any case, with or without the

authority to investigate, petitioner is liable for claims made under the contract. Having assumed

a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed

upon. In the end, the liability of the health care provider attaches once the member is

hospitalized for the disease or injury covered by the agreement or whenever he avails of thecovered benefits which he has prepaid.

Under Section 27 of the Insurance Code, ―a concealment entitles the injured party to rescind

a contract of insurance.‖ The right to rescind should be exercised previous to the

commencement of an action on the contract.[17]

In this case, no rescission was made. Besides,

the cancellation of health care agreements as in insurance policies require the concurrence of the

following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of

the grounds mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon

request of insured, to furnish facts on which cancellation is based.[18]






















None of the above pre-conditions was fulfilled in this case. When the terms of insurance

contract contain limitations on liability, courts should construe them in such a way as to preclude

the insurer from non-compliance with his obligation.[19]

Being a contract of adhesion, the terms

of an insurance contract are to be construed strictly against the party which prepared the contract

– the insurer .[20]

By reason of the exclusive control of the insurance company over the terms and

phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer

and liberally in favor of the insured, especially to avoid forfeiture.[21]

This is equally applicable

to Health Care Agreements. The phraseology used in medical or hospital service contracts, such

as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or

reasonably susceptible of two interpretations the construction conferring coverage is to be

adopted, and exclusionary clauses of doubtful import should be strictly construed against the

provider .[22]

Anent the incontestability of the membership of respondent’s husband, we quote with

approval the following findings of the trial court:

(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc.

had twelve months from the date of issuance of the Agreement within which to contest the

membership of the patient if he had previous ailment of asthma, and six months from the

issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having

expired, the defense of concealment or misrepresentation no longer lie.[23]

Finally, petitioner alleges that respondent was not the legal wife of the deceased member

considering that at the time of their marriage, the deceased was previously married to another

woman who was still alive. The health care agreement is in the nature of a contract of

indemnity. Hence, payment should be made to the party who incurred the expenses. It is not

controverted that respondent paid all the hospital and medical expenses. She is therefore entitled

to reimbursement. The records adequately prove the expenses incurred by respondent for the

deceased’s hospitalization, medication and the professional fees of the attending physicians.[24]

WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of

the Court of Appeals dated December 14, 1995 is AFFIRMED.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, and Kapunan, JJ., concur.



























G.R. No. 115278 May 23, 1995 (244 SCRA 308)

FORTUNE INSURANCE AND SURETY CO., INC., petitioner,

vs.COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.

DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review on certiorari is whether the

petitioner is liable under the Money, Security, and Payroll Robbery policy it issued to the private

respondent or whether recovery thereunder is precluded under the general exceptions clause

thereof. Both the trial court and the Court of Appeals held that there should be recovery. The

petitioner contends otherwise.

This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by private respondent Producers Bank of the Philippines (hereinafter Producers) against petitioner

Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the

sum of P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during a

robbery of Producer's armored vehicle while it was in transit to transfer the money from its Pasay

City Branch to its head office in Makati. The case was docketed as Civil Case No. 1817 and

assigned to Branch 146 thereof.

After joinder of issues, the parties asked the trial court to render judgment based on the following

stipulation of facts:

1. The plaintiff was insured by the defendants and an insurance

policy was issued, the duplicate original of which is hereto

attached as Exhibit "A";

2. An armored car of the plaintiff, while in the process of

transferring cash in the sum of P725,000.00 under the custody of

its teller, Maribeth Alampay, from its Pasay Branch to its Head

Office at 8737 Paseo de Roxas, Makati, Metro Manila on June 29,

1987, was robbed of the said cash. The robbery took place while

the armored car was traveling along Taft Avenue in Pasay City;

3. The said armored car was driven by Benjamin Magalong Y de

Vera, escorted by Security Guard Saturnino Atiga Y Rosete.

Driver Magalong was assigned by PRC Management Systems with

the plaintiff by virtue of an Agreement executed on August 7,



1983, a duplicate original copy of which is hereto attached as

Exhibit "B";

4. The Security Guard Atiga was assigned by Unicorn Security

Services, Inc. with the plaintiff by virtue of a contract of Security

Service executed on October 25, 1982, a duplicate original copy of

which is hereto attached as Exhibit "C";

5. After an investigation conducted by the Pasay police authorities,

the driver Magalong and guard Atiga were charged, together with

Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with

violation of P.D. 532 (Anti-Highway Robbery Law) before the

Fiscal of Pasay City. A copy of the complaint is hereto attached as

Exhibit "D";

6. The Fiscal of Pasay City then filed an information charging the

aforesaid persons with the said crime before Branch 112 of the

Regional Trial Court of Pasay City. A copy of the said information

is hereto attached as Exhibit "E." The case is still being tried as of

this date;

7. Demands were made by the plaintiff upon the defendant to pay

the amount of the loss of P725,000.00, but the latter refused to pay

as the loss is excluded from the coverage of the insurance policy,

attached hereto as Exhibit "A," specifically under page 1 thereof,"General Exceptions" Section (b), which is marked as Exhibit "A-

1," and which reads as follows:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in report of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or

criminal act of the insured or any officer, employee,

partner, director, trustee or authorized

representative of the Insured whether acting alone

or in conjunction with others. . . .

8. The plaintiff opposes the contention of the defendant and

contends that Atiga and Magalong are not its "officer, employee, . .



. trustee or authorized representative . . . at the time of the

robbery. 1

On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive

portion thereof reads as follows:

WHEREFORE, premises considered, the Court finds for plaintiff and against

defendant, and

(a) orders defendant to pay plaintiff the net amount

of P540,000.00 as liability under Policy No. 0207

(as mitigated by the P40,000.00 special clause

deduction and by the recovered sum of

P145,000.00), with interest thereon at the legal rate,

until fully paid;

(b) orders defendant to pay plaintiff the sum of

P30,000.00 as and for attorney's fees; and

(c) orders defendant to pay costs of suit.

All other claims and counterclaims are accordingly dismissed forthwith.

SO ORDERED.2

The trial court ruled that Magalong and Atiga were not employees or representatives ofProducers. It Said:

The Court is satisfied that plaintiff may not be said to have selected and engaged

Magalong and Atiga, their services as armored car driver and as security guard

having been merely offered by PRC Management and by Unicorn Security and

which latter firms assigned them to plaintiff. The wages and salaries of both

Magalong and Atiga are presumably paid by their respective firms, which alone

wields the power to dismiss them. Magalong and Atiga are assigned to plaintiff in

fulfillment of agreements to provide driving services and property protection as

such — in a context which does not impress the Court as translating into

plaintiff's power to control the conduct of any assigned driver or security guard,

beyond perhaps entitling plaintiff to request are replacement for such driver

guard. The finding is accordingly compelled that neither Magalong nor Atiga

were plaintiff's "employees" in avoidance of defendant's liability under the policy,

particularly the general exceptions therein embodied.



Neither is the Court prepared to accept the proposition that driver Magalong and

guard Atiga were the "authorized representatives" of plaintiff. They were merely

an assigned armored car driver and security guard, respectively, for the June 29,

1987 money transfer from plaintiff's Pasay Branch to its Makati Head Office.

Quite plainly — it was teller Maribeth Alampay who had "custody" of the

P725,000.00 cash being transferred along a specified money route, and hence

plaintiff's then designated "messenger" adverted to in the policy.3

Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R. CV

No. 32946. In its decision4 promulgated on 3 May 1994, it affirmed in toto the appealed

decision.

The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were

neither employees nor authorized representatives of Producers and ratiocinated as follows:

A policy or contract of insurance is to be construed liberally in favor of the

insured and strictly against the insurance company (New Life Enterprises vs.

Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of

Appeals, 211 SCRA 554). Contracts of insurance, like other contracts, are to be

construed according to the sense and meaning of the terms which the parties

themselves have used. If such terms are clear and unambiguous, they must be

taken and understood in their plain, ordinary and popular sense (New Life

Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of Appeals,

195 SCRA 193).

The language used by defendant-appellant in the above quoted stipulation is plain,

ordinary and simple. No other interpretation is necessary. The word "employee"

must be taken to mean in the ordinary sense.

The Labor Code is a special law specifically dealing with/and specifically

designed to protect labor and therefore its definition as to employer-employee

relationships insofar as the application/enforcement of said Code is concerned

must necessarily be inapplicable to an insurance contract which defendant-

appellant itself had formulated. Had it intended to apply the Labor Code in

defining what the word "employee" refers to, it must/should have so statedexpressly in the insurance policy.

Said driver and security guard cannot be considered as employees of plaintiff-

appellee bank because it has no power to hire or to dismiss said driver and

security guard under the contracts (Exhs. 8 and C) except only to ask for their

replacements from the contractors. 5



On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court

and the Court of Appeals erred in holding it liable under the insurance policy because the loss

falls within the general exceptions clause considering that driver Magalong and security guard

Atiga were Producers' authorized representatives or employees in the transfer of the money and

payroll from its branch office in Pasay City to its head office in Makati.

According to Fortune, when Producers commissioned a guard and a driver to transfer its funds

from one branch to another, they effectively and necessarily became its authorized

representatives in the care and custody of the money. Assuming that they could not be

considered authorized representatives, they were, nevertheless, employees of Producers. It

asserts that the existence of an employer-employee relationship "is determined by law and being

such, it cannot be the subject of agreement." Thus, if there was in reality an employer-employee

relationship between Producers, on the one hand, and Magalong and Atiga, on the other, the

provisions in the contracts of Producers with PRC Management System for Magalong and with

Unicorn Security Services for Atiga which state that Producers is not their employer and that it isabsolved from any liability as an employer, would not obliterate the relationship.

Fortune points out that an employer-employee relationship depends upon four standards: (1) the

manner of selection and engagement of the putative employee; (2) the mode of payment of

wages; (3) the presence or absence of a power to dismiss; and (4) the presence and absence of a

power to control the putative employee's conduct. Of the four, the right-of-control test has been

held to be the decisive factor.6 It asserts that the power of control over Magalong and Atiga was

vested in and exercised by Producers. Fortune further insists that PRC Management System and

Unicorn Security Services are but "labor-only" contractors under Article 106 of the Labor Code

which provides:

Art. 106. Contractor or subcontractor . — There is "labor-only" contracting where

the person supplying workers to an employer does not have substantial capital or

investment in the form of tools, equipment, machineries, work premises, among

others, and the workers recruited and placed by such persons are performing

activities which are directly related to the principal business of such employer. In

such cases, the person or intermediary shall be considered merely as an agent of

the employer who shall be responsible to the workers in the same manner and

extent as if the latter were directly employed by him.

Fortune thus contends that Magalong and Atiga were employees of Producers, following the

ruling in International Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only"

contractor is equivalent to a finding that there is an employer-employee relationship between the

owner of the project and the employees of the "labor-only" contractor.



On the other hand, Producers contends that Magalong and Atiga were not its employees since it

had nothing to do with their selection and engagement, the payment of their wages, their

dismissal, and the control of their conduct. Producers argued that the rule in International Timber

Corp. is not applicable to all cases but only when it becomes necessary to prevent any violation

or circumvention of the Labor Code, a social legislation whose provisions may set aside

contracts entered into by parties in order to give protection to the working man.

Producers further asseverates that what should be applied is the rule in American President Lines

vs. Clave,8 to wit:

In determining the existence of employer-employee relationship, the following

elements are generally considered, namely: (1) the selection and engagement of

the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the

power to control the employee's conduct.

Since under Producers' contract with PRC Management Systems it is the latter which assigned

Magalong as the driver of Producers' armored car and was responsible for his faithful discharge

of his duties and responsibilities, and since Producers paid the monthly compensation of

P1,400.00 per driver to PRC Management Systems and not to Magalong, it is clear that

Magalong was not Producers' employee. As to Atiga, Producers relies on the provision of its

contract with Unicorn Security Services which provides that the guards of the latter "are in no

sense employees of the CLIENT."

There is merit in this petition.

It should be noted that the insurance policy entered into by the parties is a theft or robbery

insurance policy which is a form of casualty insurance. Section 174 of the Insurance Code

provides:

Sec. 174. Casualty insurance is insurance covering loss or liability arising from

accident or mishap, excluding certain types of loss which by law or custom are

considered as falling exclusively within the scope of insurance such as fire or

marine. It includes, but is not limited to, employer's liability insurance, public

liability insurance, motor vehicle liability insurance, plate glass

insurance, burglary and theft insurance, personal accident and health insurance aswritten by non-life insurance companies, and other substantially similar kinds of

insurance. (emphases supplied)

Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains

no other provisions applicable to casualty insurance or to robbery insurance in particular. These

contracts are, therefore, governed by the general provisions applicable to all types of insurance.



Outside of these, the rights and obligations of the parties must be determined by the terms of

their contract, taking into consideration its purpose and always in accordance with the general

principles of insurance law.9

It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to

defraud the insurer — the moral hazard — is so great that insurers have found it necessary to fill

up their policies with countless restrictions, many designed to reduce this hazard. Seldom does

the insurer assume the risk of all losses due to the hazards insured against."10

Persons frequently

excluded under such provisions are those in the insured's service and employment.11

The

purpose of the exception is to guard against liability should the theft be committed by one having

unrestricted access to the property.12

In such cases, the terms specifying the excluded classes are

to be given their meaning as understood in common speech.13

The terms "service" and

"employment" are generally associated with the idea of selection, control, and compensation.14

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved

against the insurer,15

or it should be construed liberally in favor of the insured and strictly

against the insurer.16

Limitations of liability should be regarded with extreme jealousy and must

be construed

in such a way, as to preclude the insurer from non-compliance with its obligation.17

It goes

without saying then that if the terms of the contract are clear and unambiguous, there is no room

for construction and such terms cannot be enlarged or diminished by judicial construction.18

An insurance contract is a contract of indemnity upon the terms and conditions specified

therein.19

It is settled that the terms of the policy constitute the measure of the insurer's

liability.

20

In the absence of statutory prohibition to the contrary, insurance companies have thesame rights as individuals to limit their liability and to impose whatever conditions they deem

best upon their obligations not inconsistent with public policy.

With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify

as employees or authorized representatives of Producers under paragraph (b) of the general

exceptions clause of the policy which, for easy reference, is again quoted:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in respect of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or criminal act of

the insured or any officer, employee, partner, director, trustee or



authorized representative of the Insured whether acting alone or in

conjunction with others. . . . (emphases supplied)

There is marked disagreement between the parties on the correct meaning of the terms

"employee" and "authorized representatives."

It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt

from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of

persons granted or having unrestricted access to Producers' money or payroll. When it used then

the term "employee," it must have had in mind any person who qualifies as such as generally and

universally understood, or jurisprudentially established in the light of the four standards in the

determination of the employer-employee relationship,21

or as statutorily declared even in a

limited sense as in the case of Article 106 of the Labor Code which considers the employees

under a "labor-only" contract as employees of the party employing them and not of the party who

supplied them to the employer.22

Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security

Services are "labor-only" contracts.

Producers, however, insists that by the express terms thereof, it is not the employer of

Magalong. Notwithstanding such express assumption of PRC Management Systems and

Unicorn Security Services that the drivers and the security guards each shall supply to

Producers are not the latter's employees, it may, in fact, be that it is because the contracts

are, indeed, "labor-only" contracts. Whether they are is, in the light of the criteria

provided for in Article 106 of the Labor Code, a question of fact. Since the parties optedto submit the case for judgment on the basis of their stipulation of facts which are strictly

limited to the insurance policy, the contracts with PRC Management Systems and

Unicorn Security Services, the complaint for violation of P.D. No. 532, and the

information therefor filed by the City Fiscal of Pasay City, there is a paucity of evidence

as to whether the contracts between Producers and PRC Management Systems and

Unicorn Security Services are "labor-only" contracts.

But even granting for the sake of argument that these contracts were not "labor-only" contracts,

and PRC Management Systems and Unicorn Security Services were truly independent

contractors, we are satisfied that Magalong and Atiga were, in respect of the transfer ofProducer's money from its Pasay City branch to its head office in Makati, its "authorized

representatives" who served as such with its teller Maribeth Alampay. Howsoever viewed,

Producers entrusted the three with the specific duty to safely transfer the money to its head

office, with Alampay to be responsible for its custody in transit; Magalong to drive the armored

vehicle which would carry the money; and Atiga to provide the needed security for the money,

the vehicle, and his two other companions. In short, for these particular tasks, the three acted as



agents of Producers. A "representative" is defined as one who represents or stands in the place of

another; one who represents others or another in a special capacity, as an agent, and is

interchangeable with "agent."23

In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of

the insurance policy.

WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals

in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional Trial

Court of Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The complaint in

Civil Case No. 1817 is DISMISSED.

No pronouncement as to costs.

SO ORDERED.

Bellosillo and Kapunan, JJ., concur.

Padilla, J., took no part

G.R. No. L-15895 November 29, 1920

RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin Ma.

Herrer, plaintiff-appellant, vs.SUN LIFE ASSURANCE COMPANY OF

CANADA, defendant-appellee.

Jose A. Espiritu for appellant.

Cohn, Fisher and DeWitt for appellee.

MALCOLM, J.:

This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin Ma.

Herrer to recover from the defendant life insurance company the sum of pesos 6,000 paid by the

deceased for a life annuity. The trial court gave judgment for the defendant. Plaintiff appeals.

The undisputed facts are these: On September 24, 1917, Joaquin Herrer made application to the

Sun Life Assurance Company of Canada through its office in Manila for a life annuity. Two days

later he paid the sum of P6,000 to the manager of the company's Manila office and was given a

receipt reading as follows:



MANILA, I. F., 26 de septiembre, 1917 .

PROVISIONAL RECEIPT Pesos 6,000

Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como prima dela Renta

Vitalicia solicitada por dicho Don Joaquin Herrer hoy, sujeta al examen medico y aprobacion dela Oficina Central de la Compañia.

The application was immediately forwarded to the head office of the company at Montreal,

Canada. On November 26, 1917, the head office gave notice of acceptance by cable to Manila.

(Whether on the same day the cable was received notice was sent by the Manila office of Herrer

that the application had been accepted, is a disputed point, which will be discussed later.) On

December 4, 1917, the policy was issued at Montreal. On December 18, 1917, attorney Aurelio

A. Torres wrote to the Manila office of the company stating that Herrer desired to withdraw his

application. The following day the local office replied to Mr. Torres, stating that the policy had

been issued, and called attention to the notification of November 26, 1917. This letter was

received by Mr. Torres on the morning of December 21, 1917. Mr. Herrer died on December 20,

1917.

As above suggested, the issue of fact raised by the evidence is whether Herrer received notice of

acceptance of his application. To resolve this question, we propose to go directly to the evidence

of record.

The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time of

the trial testified that he prepared the letter introduced in evidence as Exhibit 3, of date

November 26, 1917, and handed it to the local manager, Mr. E. E. White, for signature. The

witness admitted on cross-examination that after preparing the letter and giving it to he manager,

he new nothing of what became of it. The local manager, Mr. White, testified to having received

the cablegram accepting the application of Mr. Herrer from the home office on November 26,

1917. He said that on the same day he signed a letter notifying Mr. Herrer of this acceptance.

The witness further said that letters, after being signed, were sent to the chief clerk and placed on

the mailing desk for transmission. The witness could not tell if the letter had every actually been

placed in the mails. Mr. Tuason, who was the chief clerk, on November 26, 1917, was not called

as a witness. For the defense, attorney Manuel Torres testified to having prepared the will of

Joaquin Ma. Herrer, that on this occasion, Mr. Herrer mentioned his application for a lifeannuity, and that he said that the only document relating to the transaction in his possession was

the provisional receipt. Rafael Enriquez, the administrator of the estate, testified that he had gone

through the effects of the deceased and had found no letter of notification from the insurance

company to Mr. Herrer.



Our deduction from the evidence on this issue must be that the letter of November 26, 1917,

notifying Mr. Herrer that his application had been accepted, was prepared and signed in the local

office of the insurance company, was placed in the ordinary channels for transmission, but as far

as we know, was never actually mailed and thus was never received by the applicant.

Not forgetting our conclusion of fact, it next becomes necessary to determine the law which

should be applied to the facts. In order to reach our legal goal, the obvious signposts along the

way must be noticed.

Until quite recently, all of the provisions concerning life insurance in the Philippines were found

in the Code of Commerce and the Civil Code. In the Code of the Commerce, there formerly

existed Title VIII of Book III and Section III of Title III of Book III, which dealt with insurance

contracts. In the Civil Code there formerly existed and presumably still exist, Chapters II and IV,

entitled insurance contracts and life annuities, respectively, of Title XII of Book IV. On the after

July 1, 1915, there was, however, in force the Insurance Act. No. 2427. Chapter IV of this Act

concerns life and health insurance. The Act expressly repealed Title VIII of Book II and Section

III of Title III of Book III of the code of Commerce. The law of insurance is consequently now

found in the Insurance Act and the Civil Code.

While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the methods to

be followed in order that there may be a contract of insurance. On the other hand, the Civil Code,

in article 1802, not only describes a contact of life annuity markedly similar to the one we are

considering, but in two other articles, gives strong clues as to the proper disposition of the case.

For instance, article 16 of the Civil Code provides that "In matters which are governed by special

laws, any deficiency of the latter shall be supplied by the provisions of this Code." On thesupposition, therefore, which is incontestable, that the special law on the subject of insurance is

deficient in enunciating the principles governing acceptance, the subject-matter of the Civil code,

if there be any, would be controlling. In the Civil Code is found article 1262 providing that

"Consent is shown by the concurrence of offer and acceptance with respect to the thing and the

consideration which are to constitute the contract. An acceptance made by letter shall not bind

the person making the offer except from the time it came to his knowledge. The contract, in such

case, is presumed to have been entered into at the place where the offer was made." This latter

article is in opposition to the provisions of article 54 of the Code of Commerce.

If no mistake has been made in announcing the successive steps by which we reach a conclusion,then the only duty remaining is for the court to apply the law as it is found. The legislature in its

wisdom having enacted a new law on insurance, and expressly repealed the provisions in the

Code of Commerce on the same subject, and having thus left a void in the commercial law, it

would seem logical to make use of the only pertinent provision of law found in the Civil code,

closely related to the chapter concerning life annuities.



The Civil Code rule, that an acceptance made by letter shall bind the person making the offer

only from the date it came to his knowledge, may not be the best expression of modern

commercial usage. Still it must be admitted that its enforcement avoids uncertainty and tends to

security. Not only this, but in order that the principle may not be taken too lightly, let it be

noticed that it is identical with the principles announced by a considerable number of respectable

courts in the United States. The courts who take this view have expressly held that an acceptance

of an offer of insurance not actually or constructively communicated to the proposer does not

make a contract. Only the mailing of acceptance, it has been said, completes the contract of

insurance, as the locus poenitentiae is ended when the acceptance has passed beyond the control

of the party. (I Joyce, The Law of Insurance, pp. 235, 244.)

In resume, therefore, the law applicable to the case is found to be the second paragraph of article

1262 of the Civil Code providing that an acceptance made by letter shall not bind the person

making the offer except from the time it came to his knowledge. The pertinent fact is, that

according to the provisional receipt, three things had to be accomplished by the insurancecompany before there was a contract: (1) There had to be a medical examination of the applicant;

(2) there had to be approval of the application by the head office of the company; and (3) this

approval had in some way to be communicated by the company to the applicant. The further

admitted facts are that the head office in Montreal did accept the application, did cable the

Manila office to that effect, did actually issue the policy and did, through its agent in Manila,

actually write the letter of notification and place it in the usual channels for transmission to the

addressee. The fact as to the letter of notification thus fails to concur with the essential elements

of the general rule pertaining to the mailing and delivery of mail matter as announced by the

American courts, namely, when a letter or other mail matter is addressed and mailed with

postage prepaid there is a rebuttable presumption of fact that it was received by the addressee assoon as it could have been transmitted to him in the ordinary course of the mails. But if any one

of these elemental facts fails to appear, it is fatal to the presumption. For instance, a letter will

not be presumed to have been received by the addressee unless it is shown that it was deposited

in the post-office, properly addressed and stamped. (See 22 C.J., 96, and 49 L. R. A. [N. S.], pp.

458, et seq., notes.)

We hold that the contract for a life annuity in the case at bar was not perfected because it has not

been proved satisfactorily that the acceptance of the application ever came to the knowledge of

the applicant.lawph!l.net

Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum of

P6,000 with legal interest from November 20, 1918, until paid, without special finding as to

costs in either instance. So ordered.

Mapa, C.J., Araullo, Avanceña and Villamor, JJ., concur.

Johnson, J., dissents.



G.R. No. L-31845 April 30, 1979

GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner, vs.HONORABLE COURT

OF APPEALS, respondents.

G.R. No. L-31878 April 30, 1979

LAPULAPU D. MONDRAGON, petitioner, vs.HON. COURT OF APPEALS and NGO

HING, respondents.

Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner

Company.

Voltaire Garcia for petitioner Mondragon.

Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

DE CASTRO, J.:

The two above-entitled cases were ordered consolidated by the Resolution of this Court datedApril 29, 1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases seek similar

relief, through these petitions for certiorari by way of appeal, from the amended decision of

respondent Court of Appeals which affirmed in toto the decision of the Court of First Instance of

Cebu, ordering "the defendants (herein petitioners Great Pacific Ligfe Assurance Company and

Mondragon) jointly and severally to pay plaintiff (herein private respondent Ngo Hing) the

amount of P50,000.00 with interest at 6% from the date of the filing of the complaint, and the

sum of P1,077.75, without interest.

It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the

Great Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a twenty-yearendownment policy in the amount of P50,000.00 on the life of his one-year old daughter Helen

Go. Said respondent supplied the essential data which petitioner Lapulapu D. Mondragon,

Branch Manager of the Pacific Life in Cebu City wrote on the corresponding form in his own

handwriting (Exhibit I-M). Mondragon finally type-wrote the data on the application form which

was signed by private respondent Ngo Hing. The latter paid the annual premuim the sum of

P1,077.75 going over to the Company, but he reatined the amount of P1,317.00 as his



commission for being a duly authorized agebt of Pacific Life. Upon the payment of the insurance

premuim, the binding deposit receipt (Exhibit E) was issued to private respondent Ngo Hing.

Likewise, petitioner Mondragon handwrote at the bottom of the back page of the application

form his strong recommendation for the approval of the insurance application. Then on April 30,

1957, Mondragon received a letter from Pacific Life disapproving the insurance application

(Exhibit 3-M). The letter stated that the said life insurance application for 20-year endowment

plan is not available for minors below seven years old, but Pacific Life can consider the same

under the Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile

Non-Medical Declaration be sent to the company.

The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by

petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon

wrote back Pacific Life again strongly recommending the approval of the 20-year endowment

insurance plan to children, pointing out that since 1954 the customers, especially the Chinese,

were asking for such coverage (Exhibit 4-M).

It was when things were in such state that on May 28, 1957 Helen Go died of influenza with

complication of bronchopneumonia. Thereupon, private respondent sought the payment of the

proceeds of the insurance, but having failed in his effort, he filed the action for the recovery of

the same before the Court of First Instance of Cebu, which rendered the adverse decision as

earlier refered to against both petitioners.

The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E)

constituted a temporary contract of the life insurance in question; and (2) whether private

respondent Ngo Hing concealed the state of health and physical condition of Helen Go, whichrendered void the aforesaid Exhibit E.

1. At the back of Exhibit E are condition precedents required before a deposit is considered a

BINDING RECEIPT. These conditions state that:

A. If the Company or its agent, shan have received the premium deposit ... and the

insurance application, ON or PRIOR to the date of medical examination ... said

insurance shan be in force and in effect from the date of such medical

examination, for such period as is covered by the deposit ..., PROVIDED the

company shall be satisfied that on said date the applicant was insurable on standard rates under its rule for the amount of insurance and the kind of policy

requested in the application.

D. If the Company does not accept the application on standard rate for the amount

of insurance and/or the kind of policy requested in the application but issue,

or offers to issue a policy for a different plan and/or amount ..., the insurance



shall not be in force and in effect until the applicant shall have accepted the

policy as issued or offered by the Company and shall have paid the full premium

thereof. If the applicant does not accept the policy, the deposit shall be refunded.

E. If the applicant shall not have been insurable under Condition A above, and

the Company declines to approve the application the insurance applied for shall

not have been in force at any time and the sum paid be returned to the applicant

upon the surrender of this receipt. (Emphasis Ours).

The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended

to be merely a provisional or temporary insurance contract and only upon compliance of the

following conditions: (1) that the company shall be satisfied that the applicant was insurable on

standard rates; (2) that if the company does not accept the application and offers to issue a policy

for a different plan, the insurance contract shall not be binding until the applicant accepts the

policy offered; otherwise, the deposit shall be reftmded; and (3) that if the applicant is not ble

according to the standard rates, and the company disapproves the application, the insurance

applied for shall not be in force at any time, and the premium paid shall be returned to the

applicant.

Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is

merely an acknowledgment, on behalf of the company, that the latter's branch office had received

from the applicant the insurance premium and had accepted the application subject for

processing by the insurance company; and that the latter will either approve or reject the same on

the basis of whether or not the applicant is "insurable on standard rates." Since petitioner Pacific

Life disapproved the insurance application of respondent Ngo Hing, the binding deposit receiptin question had never become in force at any time.

Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and

does not insure outright. As held by this Court, where an agreement is made between the

applicant and the agent, no liability shall attach until the principal approves the risk and a receipt

is given by the agent. The acceptance is merely conditional and is subordinated to the act of the

company in approving or rejecting the application. Thus, in life insurance, a "binding slip" or

"binding receipt" does not insure by itself (De Lim vs. Sun Life Assurance Company of Canada,

41 Phil. 264).

It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-

M), Pacific Life disapproved the insurance application in question on the ground that it is not

offering the twenty-year endowment insurance policy to children less than seven years of age.

What it offered instead is another plan known as the Juvenile Triple Action, which private

respondent failed to accept. In the absence of a meeting of the minds between petitioner Pacific

Life and private respondent Ngo Hing over the 20-year endowment life insurance in the amount



of P50,000.00 in favor of the latter's one-year old daughter, and with the non-compliance of the

abovequoted conditions stated in the disputed binding deposit receipt, there could have been no

insurance contract duly perfected between thenl Accordingly, the deposit paid by private

respondent shall have to be refunded by Pacific Life.

As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance,

like other contracts, must be assented to by both parties either in person or by their agents ... The

contract, to be binding from the date of the application, must have been a completed contract,

one that leaves nothing to be dione, nothing to be completed, nothing to be passed upon, or

determined, before it shall take effect. There can be no contract of insurance unless the minds of

the parties have met in agreement."

We are not impressed with private respondent's contention that failure of petitioner Mondragon

to communicate to him the rejection of the insurance application would not have any adverse

effect on the allegedly perfected temporary contract (Respondent's Brief, pp. 13-14). In this first

place, there was no contract perfected between the parties who had no meeting of their minds.

Private respondet, being an authorized insurance agent of Pacific Life at Cebu branch office, is

indubitably aware that said company does not offer the life insurance applied for. When he filed

the insurance application in dispute, private respondent was, therefore, only taking the chance

that Pacific Life will approve the recommendation of Mondragon for the acceptance and

approval of the application in question along with his proposal that the insurance company starts

to offer the 20-year endowment insurance plan for children less than seven years. Nonetheless,

the record discloses that Pacific Life had rejected the proposal and recommendation. Secondly,

having an insurable interest on the life of his one-year old daughter, aside from being an

insurance agent and an offense associate of petitioner Mondragon, private respondent Ngo Hingmust have known and followed the progress on the processing of such application and could not

pretend ignorance of the Company's rejection of the 20-year endowment life insurance

application.

At this juncture, We find it fit to quote with approval, the very apt observation of then Appellate

Associate Justice Ruperto G. Martin who later came up to this Court, from his dissenting opinion

to the amended decision of the respondent court which completely reversed the original decision,

the following:

Of course, there is the insinuation that neither the memorandum of rejection(Exhibit 3-M) nor the reply thereto of appellant Mondragon reiterating the desire

for applicant's father to have the application considered as one for a 20-year

endowment plan was ever duly communicated to Ngo; Hing, father of the minor

applicant. I am not quite conninced that this was so. Ngo Hing, as father of the

applicant herself, was precisely the "underwriter who wrote this case" (Exhibit H-

1). The unchallenged statement of appellant Mondragon in his letter of May 6,



1957) (Exhibit 4-M), specifically admits that said Ngo Hing was "our associate"

and that it was the latter who "insisted that the plan be placed on the 20-year

endowment plan." Under these circumstances, it is inconceivable that the progress

in the processing of the application was not brought home to his knowledge. He

must have been duly apprised of the rejection of the application for a 20-year

endowment plan otherwise Mondragon would not have asserted that it was Ngo

Hing himself who insisted on the application as originally filed, thereby implictly

declining the offer to consider the application under the Juvenile Triple Action

Plan. Besides, the associate of Mondragon that he was, Ngo Hing should only be

presumed to know what kind of policies are available in the company for minors

below 7 years old. What he and Mondragon were apparently trying to do in the

premises was merely to prod the company into going into the business of issuing

endowment policies for minors just as other insurance companies allegedly do.

Until such a definite policy is however, adopted by the company, it can hardly be

said that it could have been bound at all under the binding slip for a plan ofinsurance that it could not have, by then issued at all. (Amended Decision, Rollo,

pp- 52-53).

2. Relative to the second issue of alleged concealment. this Court is of the firm belief that private

respondent had deliberately concealed the state of health and piysical condition of his daughter

Helen Go. Wher private regpondeit supplied the required essential data for the insurance

application form, he was fully aware that his one-year old daughter is typically a mongoloid

child. Such a congenital physical defect could never be ensconced nor disguished. Nonetheless,

private respondent, in apparent bad faith, withheld the fact materal to the risk to be assumed by

the insurance compary. As an insurance agent of Pacific Life, he ought to know, as he surelymust have known. his duty and responsibility to such a material fact. Had he diamond said

significant fact in the insurance application fom Pacific Life would have verified the same and

would have had no choice but to disapprove the application outright.

The contract of insurance is one of perfect good faith uberrima fides meaning good faith,

absolute and perfect candor or openness and honesty; the absence of any concealment or

demotion, however slight [Black's Law Dictionary, 2nd Edition], not for the alone but equally so

for the insurer (Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70). Concealment

is a neglect to communicate that which a partY knows aDd Ought to communicate (Section 25,

Act No. 2427). Whether intentional or unintentional the concealment entitles the insurer to

rescind the contract of insurance (Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105

Phil 930; Satumino vs. Philippine American Life Insurance Company, 7 SCRA 316). Private

respondent appears guilty thereof.



We are thus constrained to hold that no insurance contract was perfected between the parties

with the noncompliance of the conditions provided in the binding receipt, and concealment, as

legally defined, having been comraitted by herein private respondent.

WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby

entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life Assurance

Company from their civil liabilities as found by respondent Court and ordering the aforesaid

insurance company to reimburse the amount of P1,077.75, without interest, to private

respondent, Ngo Hing. Costs against private respondent.

SO ORDERED.

Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera, JJ., concur.

Fernandez, J., took no part.

Documents

Insurance cases Nov 22.docx